What Is Really Inside a Fund

What sits inside a fund is not "the index" or "the market" but a specific basket of assets on a specific date, wrapped in a structure of rights and costs. You do not own the underlying securities directly; you own a share of the net assets — and that is exactly why your result and the result of the underlying basket diverge. The gap is made up of the replication method, the cash balance, the turnover inside the portfolio, the fees that are deducted from the assets before the unit value is published, and the taxes withheld at fund level. To understand a fund, you have to read these layers rather than its name.

What you own in legal terms

A fund unit or share is a claim on a pool of property, not a record of ownership of an individual security. The fund's property is segregated from the property of the management company: it is recorded with a specialised depository, which controls the composition of the assets and how they are disposed of. This segregation is the investor's main protection, and it does not work the way it appears to in a broker's app: the levels of record-keeping are examined in the article on the depository and the recording of rights.

The practical consequence: you cannot vote the shares held in the portfolio, the dividends are paid not to you but to the fund, and the decision on what to do with them is taken by the management company under the trust management rules.

What the holdings disclosure shows — and what it leaves out

The published holdings are a snapshot on a given date, not a permanent picture. Between the snapshot and the moment you read it, the portfolio may have changed: a rebalancing has taken place, money has flowed in or out, an issue has been replaced. The disclosure therefore has several weak points that are worth keeping in mind from the start.

Often it is not the whole portfolio that is published but only the largest positions, with the remainder going into an "other" line. The weights are given as of the snapshot date and have already shifted along with prices. The shares in the holdings are shares of the assets, not shares of your risk: concentration by issuer and concentration by sector behave differently. And the cash balance that the fund holds to meet orders and payouts is almost never visible.

If a familiar security appears among the holdings, its characteristics are checked separately: the profile is {{instrument:SBER}}, the valuation is 3,71. A fund does not remove the questions you should ask about an issuer; it hides them behind averaging. The source for holdings and parameters is the funds section, and for the financial statements of the issuers held, the reports section.

The replication method determines what is actually inside

Full physical replication means that the fund holds the securities in the same proportions as the benchmark. Sampled replication means that it reproduces the behaviour of the benchmark with a smaller number of positions, and then a tracking error appears that takes on a life of its own. A fund of funds holds units of another fund: inside, you will find nested assets and nested costs. A synthetic structure replaces the securities with a contract with a counterparty — in that case what sits inside the fund is not a share but somebody's obligation, and credit risk is added to market risk.

A separate case is when the fund buys instruments issued by entities belonging to the same group as the management company. The economics of such a deal differ from the economics of a deal with the market: see intra-group turnover.

Costs that are already inside the unit price

The fees of the management company, the depository and the registrar are deducted from the fund's assets. This means that the published unit value is a figure already net of expenses: you will not see them as a separate line in your portfolio and you will not pay them as a separate payment. What looks like a small share of assets per year is taken out continuously and from the entire amount, including the accumulated income.

On top of the explicit fees there are costs that do not appear in the price list: the spread on buying and selling securities inside the portfolio, exchange commissions, the cost of rebalancing when turnover is high, and the expenses of a nested fund, which are added to those of the outer fund. For a breakdown, see a fund's hidden costs and fund return after fees. The article on real return helps to set the outcome against the erosion of money's purchasing power.

The tax perimeter inside the fund

The dividends and coupons that the fund receives arrive under their own withholding rules — and only the remainder increases the unit value. If the fund reinvests what it receives, no taxable income arises for you until you sell the unit, and this is an advantage of the structure in its own right. The legal basis for the calculation is 13%; the details are in the article on taxes on funds and in the term tax efficiency of a fund. For a comparison with direct ownership, the dividend calendar is useful: {{dividend_calendar|limit=5}}.

The exchange price and the asset value are different figures

Net asset value per unit is calculated from the valuation of the portfolio. The exchange price is formed by orders and can deviate from the calculated value: when demand is thin, when trading in the underlying assets is halted or when the market maker withdraws, a premium or a discount appears. When you buy on the exchange, you pay the market price but own a share of the assets — and at a moment of wide divergence these are different sums of money.

How to check a specific fund

Step 1 — look at what is declared as the benchmark and by what method it is replicated. Step 2 — open the latest holdings and find the cash balance, the nested funds and the derivatives. Step 3 — add up all levels of costs, including the expenses of the nested funds. Step 4 — check who the counterparty is on the synthetic positions and who is affiliated with the management company. Step 5 — compare the exchange price with the calculated unit value before placing an order.

An honest caveat: the specific figures for costs, holdings and divergence from the benchmark depend on the fund and the date; they are not in this article and cannot be — they are taken from the funds section and the trust management rules. The terminology is in the glossary.